Nation Formation and Genetic Diversity∗

This paper presents a model of nation formation in which culturally heterogeneous agents vote on the optimal level of public spending. Larger nations beneÞt from increasing returns in the provision of public goods, but bear the costs of greater cultural heterogeneity. This tradeoff induces agents’ preferences over different geographical conÞgurations, thus determining the likelihood of secession and uniÞcation. We provide empirical support for choosing genetic distances as a proxy of cultural heterogeneity. By using data on genetic distances, we examine the stability of the current map of Europe and identify the regions prone to secession and the countries that are more likely to merge. Our framework is further applied to estimate the welfare gains from European Union membership. JEL ClassiÞcation Codes: H77, D70, F02, H40.